Peruvian President Alejandro Toledo, center, addresses reporters with Justice Minister Fernando Olivera, left, and Congressman Luis Solari, right, after meeting at Olivera's home in Lima June 20, 2002. 

Toledo's backpedaling may hurt political standing

June 21, 2002

LIMA, Peru - President Alejandro Toledo's decision to suspend an electricity industry sell-off that prompted massive protests has hobbled his economic program and will further weaken him politically, economists and business leaders say.

Six days of sometime violent protests in Arequipa, Peru's second largest city, ended Wednesday after government negotiators and local leaders reached an agreement to suspend the sale of two state-owned power companies in the poor southern region.

The government also promised to lift a state of emergency declared in the region, agreed to let Peru's higher courts rule on the legality of the sales and issued an apology.

"You can mark the hour and date when the privatization and concession process ended in Peru," economist Augusto Alvaro Rodrich said.

"At a minimum, there will be no privatizations or concessions during the rest of the year, which in the short term means the economic program has been left without funding ... and this signifies a lower ability of the government to spend," he said.

The government was counting on at least $700 million from auctions of state companies this year to finance its budget. The government has brought in $358 million so far this year and had expected another $167 million for the two electricity companies.

The government called off the sales to appease angry voters, but business leaders said the crisis in southern Peru has seriously damaged Toledo's political leadership by demonstrating a lack of resolve.

"A government needs to put clear rules in place and to act with firmness," said Julio Favre, president of a national business organization. He predicted the suspension will encourage more violent protests by groups seeking decisions from the government.

One person was killed and about 140 injured in six days of unrest in Arequipa, where protests broke out after the government announced the sales a week ago.

Demonstrations spread to six other southern cities, and the government imposed a 30-day period of martial law on the Arequipa region Sunday.

Protesters said Toledo failed to consult local leaders about the sale, reneged on a campaign promise not to sell off the power companies and ignored a court ruling against the auction.

They fear privatizing the companies will lead to job cuts and higher rates with little reinvestment in the struggling region.

Toledo's decision to send troops into Arequipa cost him support in the region, analyst Maria del Pilar Tello said. "He has lost his electoral bastion," she said.

During the 2001 presidential campaign, Toledo, Peru's first democratically elected leader of Indian descent, enjoyed his strongest support in southern Peru, where the country's highland Indian communities are concentrated.

Recent polls show Toledo's popularity hovering just above 20 percent, down from nearly 60 percent when he took office last July.

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